December 11th, 2017

“Suit” Up? : Florida’s Chapter 558 Notice Does Not Trigger an Insurer’s Duty to Defend: An Update

By: Molly Chafe Brockmeyer, Esq.

This article is an update to a previous article dated September 9, 2015. To see the previous article, click here.

On August 2, 2016, the Eleventh Circuit Court of Appeals in the Altman Contractors, Inc. v. Crum & Forster Spec. Ins. Co., No. 15-12816, slip op. (11th Cir. Aug. 2, 1016), issued its non-dispositive opinion and certification to the Florida Supreme Court.  On appeal, the Eleventh Circuit considered whether Chapter 558’s statutorily prescribed notice and repair process constitutes a “suit” under a commercial general liability (CGL) insurance policy, so as to trigger the insurer’s duty to defend. However, after reviewing the briefs submitted by the parties and amici curiae, and hearing oral argument, the Court believed that it would greatly benefit from the guidance of the Florida Supreme Court on the meaning of the policy language at issue and its relationship to Chapter 558. As such, the Eleventh Circuit certified the following question to the Florida Supreme Court:

Is the notice and repair process set forth in Chapter 558 of the Florida Statutes a “suit” within the meaning of the CGL policies issued by C&F [Crum & Forster Specialty Insurance Company] to ACI [Altman Construction, Inc.]?

 

In reaching its decision to certify, the Court focused on the language in the insurance policies and found reasonable arguments presented by both sides as to whether the Chapter 558 process constitutes a “suit” or “civil proceeding” within the meaning of the CGL policies issued by Crum & Forster. The Court stated that it was confronted with a question intersecting state insurance law and a state statute for which there is no guidance from the Florida courts. The Court noted that the outcome of this case may have significant practical and policy implications for Florida.

 

The Amici Curiae in this action are Construction Association of South Florida, the South Florida Associated General Contractors, and the Leading Builders of America, represented by Christine A. Gudaitis and Ashley B. Jordan of Ver Ploeg & Lumpkin, and Mark A. Boyle, Molly Chafe Brockmeyer and Alex Brockmeyer of Boyle & Leonard, P.A.

June 16th, 2017

Be Our Guest or “At Our Request”? : Interpreting the Additional Payment/Supplementary Payment Provisions in Requesting Attorney’s Fees and Costs

By, Molly Chafe Brockmeyer, Esq.

The Florida Supreme Court is currently reviewing the issue of whether the policy language “all investigative and legal costs incurred by us” and “all reasonable costs incurred by an insured at our request” allows for an insurer to be added to a cost judgment pursuant to section 768.79, Florida Statutes, the offer of judgment statute. See Order Accepting Jurisdiction, Government Employees Ins. Co. v. Macedo, No. SC16-935 (Fla. Oct. 19, 2016)(certifying as direct conflict and express and direct conflict).

In Government Employees Insurance Company v. Macedo, GEICO challenged a final judgment in an automobile insurance case holding it liable for a plaintiff’s attorney fees and costs after GEICO had rejected, on behalf its insured defendant, a $50,000 settlement proposal made by the plaintiff pursuant to section 768.79, Florida Statutes.  190 So. 3d 1155, 1156 (Fla. 1st DCA 2016), review granted (Oct. 19, 2016).  Plaintiff succeeded in obtaining a jury verdict in her favor, receiving more than four times the amount of the proposal. Id. The plaintiff then added GEICO to the judgment pursuant to section 627.4136(4), Florida Statutes, and sought taxable fees and costs pursuant to the offer of judgment statute. Id. The trial court added GEICO to the judgment, making GEICO jointly and severally liable with its insured. Id.

The First District Court of Appeal, upholding its decision in New Hampshire Indemnity Company v. Gray, 177 So. 3d 56 (Fla. 1st DCA 2015), stated that GEICO’s policy with the insured gave it the sole right to litigate and settle claims, and thus contractually obligated it to pay for “all investigative and legal costs incurred by us” and “all reasonable costs incurred by an insured at our request.” Id. at 1156. The court further stated that the policy did not provide a definition of legal or other costs, nor exclude, for example, costs and fees awarded to a plaintiff driver pursuant to the offer of judgment statute. Id. Further the court restated its holding in Gray:

[U]nder insurance policies such as the one here, insurers enjoy the sole right to settle or litigate claims against their insureds; therefore, choosing to litigate is no different than a request … to do so. Any such expression, or request, necessarily encompasses incurring litigation costs, which may mean not only the insurer’s litigation costs, but also those incurred by the opposing party should that party prevail. It is the insurer’s choice to litigate—a decision only it can make—that results in these costs being incurred; thus, “those expenses [are] incurred at the insurer’s request.”

Id. at 1156-57, (quoting Gray, 177 So. 3d at 63 (internal citation omitted)).

However, the court, in certifying conflict to the Florida Supreme Court, recognized the conflict with the Second District’s opinion in Steele v. Kinsey, which held that the same language was unambiguous and that the words at issue here, “reasonable expenses incurred at our request,” can only mean that the insurer must request the product or service that incurs the expense. 801 So. 2d 297, 300 (Fla. 2d DCA 2001).

On October 19, 2016, the Florida Supreme Court accepted jurisdiction. The appeal is perfected as of January 24, 2017, and the Court has dispensed with Oral Argument.

November 30th, 2015

Three’s a Party, Four’s A Crowd: The Tripartite Relationship in the Insurance Context

By Molly A. Chafe, Esquire

In Florida, communications between a lawyer and a client are “confidential” and, barring exception, not subject to disclosure. See Fla. Stat. § 90.502. One exception is the “joint client” exception to attorney-client privilege. See Fla. Stat. § 90.502(4)(e). The exception applies only when an attorney represents two parties “in common” who later are opponents in a civil action.

An attorney may represent clients jointly, so long as the joint representation does not entail a conflict of interest and the clients request or agree to the joint representation. This often comes into play in the insurance context, when a liability insurer hires an attorney to defend a policyholder; this relationship is called a “tripartite relationship” (insurer, insured and insured’s counsel). Despite having three parties to this relationship, parties to this relationship can assert attorney-client privilege and work-product.

However, when an insurer denies coverage, asserts a defense to coverage, or issues a reservation of rights under an insurance policy, the interests of the insurer and insured are in direct conflict. Univ. of Miami v. Great Am. Assur. Co., 112 So. 3d 504, 507 (Fla. 3d DCA 2013). Under such circumstances, both parties need their own counsel and an attorney generally may not represent both the insurer and the insured.Id. Thus, the tripartite relationship is broken.

However, the United States District Court for the Southern District in Maplewood Partners, L.P. v. Indian Harbor Ins. Co., 2011 WL 3918597 *1 (S.D. Fla. Sept. 6, 2011), held that an insurer was entitled to discovery of otherwise protected attorney client communications and attorney work product from the underlying case because of the existence of a common interest between the insurer and the insured and because the insured put defense counsel work product “at issue” by challenging the insurer’s allocation assessment.

The insured initiated coverage litigation against the insurer for breach of a D&O policy, disputing the insurer’s allocation between covered and uncovered amounts with respect to the defense and settlement of four separate lawsuits. Id. at *1.  The insurer sought discovery of all communications between the insured and its defense counsel concerning the underlying matters and assessments made by the insured or defense counsel concerning the insured’s liability and the settlement value of the litigation. Id.  The insured objected to this discovery, arguing that the information sought was protected by Florida’s attorney client privilege and federal law’s attorney work product doctrine. Id.

The Southern District rejected the insured’s argument after a hearing on a motion to compel, finding that the applicability of the work product doctrine in this case turned on federal law notwithstanding that the documents at issue were prepared in connection with state court litigation. Id. at *2. Thus under federal law, the court determined that the insured waived the protection afforded by the doctrine with respect to defense counsel’s assessment of liability and damages in the underlying litigation by putting that assessment “at issue.” Id. at *5. The court held that because the insured brought suit against the insurer, the insured could not preclude the discovery of information that was vital to the insurer’s defense that its allocation method was appropriate as compared to the allocation method pressed by the insured. Id.

Next, the court held that the insurer was entitled to the discovery of information that otherwise would be protected from disclosure by the privilege afforded attorney-client communications under Florida law. Id. at *5. According to the court, the insured could not claim this privilege as to the insurer because of the existence of a common interest between the insured and insurer with respect to the underlying litigation.Id.  Specifically, the court found that the insured and insurer “shared a common interest in defeating liability in the underlying proceedings.”Id. Specifically, the court rejected the insured’s arguments that there was no common interest here because the insurer did not have a duty to defend under the policy and because the insurer had issued a reservation of rights letter. Id. at *6.

September 9th, 2015

“Suit” Up? : Florida’s Chapter 558 Notice Does Not Trigger an Insurer’s Duty to Defend

By Molly A. Chafe, Esq.

 

Many states have notice and repair statutes, which provide that a claimant is required to give notice of the alleged construction defects to a contractor and allow for an opportunity the contractor to respond and repair the defects. Florida has set forth a similar notice and repair statute.  Specifically, Chapter 558 provides: “Claimants may not file an Action subject to this Chapter without first complying with the requirements of this Chapter.” 558.003, Fla. Stat. A party claiming construction defects must first serve the contractor with a written notice detailing all alleged construction defects and the resulting loss or damages to the claimant’s property. See § 558.004(1), Fla. Stat. This notice must be served at least 60 days before filing any action which varies on the size of land and association. See id.

Upon receipt of the notice, the contractor may notify all parties whom it believes may be responsible for the defects. See § 558.004(3), Fla. Stat. All parties notified of a claim are granted notice and opportunity to inspect the premises to assess the defects and the damage. See § 558.004(2) and (3), Fla. Stat. Upon such notice, the contractor is then required to provide the claimant with a written response: (a) offering to repair and/or make monetary payment; (b) disputing the claim; or (c) stating that the contractor’s insurer will make a determination as to the monetary payment. See § 558.004(4) and (5), Fla. Stat. If this process is unsuccessful in resolving the claim, then this is the only time that litigation can formally begin. See § 558.004(7), Fla. Stat.

In Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., Case No. 13-80831-CIV, 2015 WL 3539755, (S.D. Fla. June 4, 2015), the United States District Court for the Southern District of Florida evaluated whether an insurer had a duty to defend and indemnify an insured who receives a notice of claim pursuant to Chapter 558. In the dispute, a condominium association served the general contractor, Altman Contractors, Inc. (“ACI”) with the notice of claim pursuant to Chapter 558. Id. at *1. As a result, ACI sent the notice of the claim to its insurer, Crum & Forster (“Crum”), and demanded a defense and indemnification. Id. Crum denied that it had a duty to defend or indemnify ACI because the matter was not a “suit”. Id. However, Crum advised ACI that it was exercising its discretion to participate in the response to the 558 Notice and hired defense counsel to participate in the response while asserting that it was not waiving its position. Id. ACI objected to Crum’s selected defense counsel and demanded that Crum continue with ACI’s chosen defense counsel who had been defending prior to Crum’s involvement. Id.  ACI also requested that Crum reimburse it for the fees and expenses that it had incurred from the time it placed Crum on notice of the 558 Notice. Id. Crum refused both requests. Id. As a result, ACI brought a declaratory action against Crum seeking its rights under the policy. Id.

The parties then filed dueling motions for summary judgment. Id. at *2. ACI moved for partial summary judgment as to whether Crum had a duty to defend, asserting that its duty was triggered when ACI demanded a defense to the Notice of Claim. Id. Crum moved for summary judgment on all issues, arguing that the language of Chapter 558, specifically section 558.004(13), Florida Statutes, bars a notice of claim from constituting a claim for insurance purposes, and, thus, there was no duty to defend or indemnify ACI. Id. Specifically, Crum argued that the Chapter 558 process did not constitute a “suit” under the terms of the policy. Id.

The Southern District disagreed with Crum’s position that the language of Chapter 558 bars a notice of claim from constituting a claim for insurance purposes.  Id. at *3. However, the Court ultimately determined that under the specific language of the standard form policies at issue, the Notice of Claim did not trigger the insurer’s duty to defend. Id. at *5. Specifically, the policies stated that Crum has “the right and duty to defend the insured against any ‘suit’ seeking damages because of ‘bodily injury’ or ‘property damage’.” Id. at *5.  The policies defined “suit” as a “civil proceeding” in which specific damages are alleged.  Id. The definition of “suit” includes an “arbitration proceeding” or any “other alternative dispute resolution proceeding.” Id.

Moreover, the Court concluded that a Notice of Claim under Chapter 558 does not constitute a “civil proceeding” and therefore is not a “suit” under the subject insurance policies.  Id.  Specifically, the Court looked Black’s Law Dictionary in defining “civil proceeding” and “proceeding”, and determined that nothing about the Chapter 558 process satisfied Black’s definition.  Id. at *6.  Additionally, the Court stated that the Florida Legislature described Chapter 558 as a “mechanism,” and not a “proceeding.” Id. at *8.

Accordingly, the Court determined that Crum had no obligation under the insurance policies to defend or indemnify ACI. Id. at *9.

This Court’s decisions concerning state statutes and standards for interpreting insurance policies have far-reaching consequences for Florida policyholders. Some have argued that the decision will have a chilling effect on the proper and effective use of Chapter 558’s alternative dispute resolution process as it would discourage both the insurance industry and policyholders from participating in the 558 process.  However, policyholders should always review their own policies and timely notify your insurer of a notice of claim should it arise.

This case is currently on appeal to the Eleventh Circuit Court of Appeals. Boyle, Gentile & Leonard, P.A. is participating as amicus counsel on behalf of several contractor and builder groups.

November 13th, 2013

THE DUTY TO SETTLE AND BAD FAITH

The Duty to Settle and Bad Faith

By Molly A. Chafe, Esquire

Boyle, Gentile, Leonard & Crockett, P.A.

Many policyholders are not fully aware that an insurance company (“insurer”) owes certain fiduciary duties to them. This not only encompasses first-party claims, but third-party claims as well. Generally, an insurer is required to defend its insured against any actions or proceedings brought against the insured that fall within the coverage of the policy. When an insurer becomes aware of a claim against one of its insureds, the insurer assumes certain fiduciary duties with regard to how the insurance company handles those claims. In assuming control, the insurer acquires a fiduciary duty toward the insured, with obligations to make decisions and otherwise act in the insured’s best interest and to exercise the utmost good faith in all aspects of handling the claim. Baxter v. Royal Indemnity Co., 285 So. 2d 652 (Fla. 1st DCA 1973).

In general, this duty of good faith toward an insured involves diligence and care in investigating the facts, evaluating the claim, and considering and negotiating a settlement. Williams v. Infinity Insurance Co., 745 So. 2d 573 (Fla. 5th DCA 1999). An insurer, in handling the defense of claims against its insured, has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business. Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980). For when the insured has surrendered to the insurer all control over the handling of the claim, including all decisions with regard to litigation and settlement, then the insurer must assume a duty to exercise such control and make such decisions in good faith and with due regard for the interests of the insured. Boston Old Colony, 386 So. 2d at 785.

This good faith duty obligates the insurer to advise the insured of settlement opportunities, to advise as to the probable outcome of the litigation, to warn of the possibility of an excess judgment, and to advise the insured of any steps he might to avoid the same. Boston Old Colony, 386 So. 2d at 785. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable, and settle the claim, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so.  Government Employees Ins. Co. v. Grounds, 311 So. 2d 164 (Fla. 1st DCA 1975), cert. discharged, 332 So. 2d 13 (Fla. 1976); Government Employees Ins. Co. v. Campbell, 288 So. 2d 513 (Fla. 1st DCA 1973), quashed, 306 So. 2d 525 (Fla. 1974); Baxter, 285 So. 2d 652, cert. discharged, 317 So. 2d 725 (Fla. 1975). Because the duty of good faith involves diligence and care in the investigation and evaluation of the claim against the insured, negligence is relevant to the question of good faith. Boston Old Colony, 386 So. 2d at 785.Moreover, where substantial injuries by the claimant and potential liability of the insured are obvious, the failure to tender modest policy limits constitutes bad faith. See Powell v. Prudential Property & Casualty Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991).

However, the case of Gutierrez v. Yochim has further strengthened an insurer’s duty to settle. 23 So. 3d 1221 (Fla. 2d DCA 2009). In Gutierrez, Ms. Gutierrez, who was insured by Dairyland, was driving her van when she made a left turn directly into the path of a motorcycle operated by Mr. Yochim, who sustained serious injuries. Id. at 1222. Ms. Gutierrez immediately reported the accident to Dairyland. Id. Within the month, the insurance company determined that Ms. Gutierrez was at fault and sent her a certified letter advising her that she would be personally exposed to an excess judgment for property damage and bodily injuries. Id. The insurance adjuster attempted to call Mr. Yochim but was unable to reach him but ordered an appraisal of the damage.  Id. Within eight days of the accident, the adjuster learned that Mr. Yochim suffered an “incapaciting” injury. Id. The appraisal report indicated a total loss upon which Dairyland cautioned Ms. Gutierrez that it “will make every effort to resolve these claims within your insurance coverage.  Due to the serious nature of the accident, this may not be possible….”  Id. at 1223.

Roughly a month after the accident and after a telephone conversation with the plaintiff’s attorney informing the insurer of his client’s possible paralysis diagnosis, the adjuster set the reserves for the injuries and asked for the medical records. Id. Although plaintiff’s attorney had the medical records, he sent the medical authorization forms to insurer two months after the accident.Id. However, it was almost five months after the accident that Dairyland actually ordered the medical records. Id. After receipt of the medical records, Dairyland formally tendered the policy limits. Id. This was eight months after the accident. A stipulated judgment in excess of the policy limits was entered by agreement among the parties. Id. at 1224. As a result, Mr. Yochim filed suit against Ms. Gutierrez, and she filed a bad faith claim against Dairyland. Id. Trial court granted summary judgment on the bad faith action in favor of Dairyland based on its assertion that it orally offered to settle for policy limits within a day of receiving the medical records. Id.

The appellate court reiterated that an insurer has an obligation to properly defend its insured from claims that are covered within the policy of insurance and that it must exercise good faith in satisfying that obligation. Id. at 1225. The court dismissed Dairyland’s argument that the delay in tendering the policy limits was a result of the claimant failing to provide medical authorization in stating that Dairyland’s “fiduciary duty to timely and properly investigate the claim against the insured was not relieved simply because it was waiting to receive information from the claimant’s attorney.” Id. It further stated that because Dairyland knew within days of the accident that its insured was entirely at fault in causing the accident and was aware that damages exceeded the insured’s policy limit, it could not say, as a matter of law, that Dairyland satisfied its duty of good faith under the circumstances. Id. at 1226.

Some practitioners have suggested that the Gutierrez case has effectively resulted in an unreciprocal and uncooperative relationship between third parties and insurers.  Specifically, the argument is that an insurer has an affirmative duty to initiate settlement negotiations while, at the same time, leaving the claimant with no duty to cooperate with such negations. However, throughout litigation, counsel for both sides should engage in cooperative communication so as to facilitate an action in good faith. But an insurer must also be aware of the duties owed, keep the insured involved and advised of the potential liability when an excess judgment is probable, and timely investigate cases involving serious injuries in order to prevent potential bad-faith claims. The duty to “settle” is not the duty to “tender policy limits.” Rather, the duty to settle encompasses the duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his or her own affairs. This includes timely investigation which may lead to a tender of policy limits, but the terms are not synonymous.

 

 

 

 

 

 

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